Five insights we learned from the SIEW 2017 Global Launch

Now in its 10th year, SIEW has witnessed many changes in the global energy landscape. This year’s theme reflects the ways in which geopolitical developments, the momentum of renewables and grid storage, and the oil and gas demand-supply imbalance will impact the global energy landscape.

Against the theme’s backdrop – which states that a sustained decline in upstream oil and gas investments could lead to sharp price corrections in the future – Sadamori added that more investment is needed to keep current oil production levels at status quo.

He was joined by Dwight Hutchins, Accenture’s Asia Pacific Managing Director for Strategy Consulting and Chairman of the Singapore's American Chamber of Commerce (AmCham) for a discussion on the theme and what it means for the global energy landscape.

Here are five insights we learned from their conversation:

1. Non-OECD will drive all global oil demand growth between 2016 and 2022

Global oil demand will continue to grow between 2016 and 2022 on the back of ongoing and accelerating economic growth – especially in emerging economies, according to IEA’s Oil 2017 Market Report. Demand is not expected to peak in the next six years and is likely to cross the 100 million barrels per day (mb/d) mark in 2019.

That said, the pace of this demand will be slow, averaging 1.4 mb/d between 2016 and 2022, due to a number of factors such as increased vehicular efficiency, changes in China’s economy and structural decline in OECD demand, said Sadamori.

During this period, it will be the non-OECD countries that are responsible for all global oil demand growth – with China and India combined accounting for 46%, Sadamori added.

2. The impact (or lack thereof) of renewables on oil demand

The theme for SIEW 2017 states that momentum for renewables will continue to grow as technology improves and prices fall.

While the share of renewables has increased drastically in recent years, said Sadamori, this has largely been in power generation.

He added that oil remains essential – and more importantly, relatively separate from renewables – in the transport and petrochemical sectors.

According to IEA’s Oil 2017 Market Report, the transport sector will account for half of global oil demand growth between 2016 and 2022 while petrochemicals account for one-third.

Even as electric vehicles (EVs) emerge, there will be no substantial impact in the transport sector during this period, said Sadamori.

IEA’s World Energy Outlook 2016 projects that 150 million EVs will be deployed worldwide by 2040, with a best case scenario of 700 million.

This translates to a reduction in oil demand by 1.5 mb/d and 6 mb/d respectively. Heavy vehicles, planes and ships will still rely heavily on fossil fuels for the foreseeable future, said Sadamori.

3. Non-OPEC will lead global oil production capacity growth

After dropping by 0.8 mb/d in 2016, non-OPEC oil output is set to return to growth in 2017 (Oil 2017 Market Report, IEA)

IEA’s Oil 2017 Market Report projects that OPEC will build 1.95 mb/d of new production capacity by 2022, in anticipation of higher demand. During this period, Iraq will emerge as the top OPEC producer, accounting for 0.7 mb/d of new capacity.

By comparison, non-OPEC production is projected to increase by 3.3 mb/d, led by the United States, Brazil and Canada.

In terms of light, tight oil (LTO) production growth, the United States alone is set to expand by 1.4 mb/d in IEA’s base scenario and this could rise to 3 mb/d at US$80 per barrel, said Sadamori.

Global upstream investment is on track for 3-7% growth after falling by 25% in 2015 and 26% in 2016, according to IEA’s Oil 2017 Market Report.

On this trajectory, global oil supply capacity growth is likely to stall by 2020 unless major new projects are sanctioned. In addition, OPEC spare capacity will contract to a 14-year low of less than 2% by 2022.

These could result in the world oil market tightening from 2020 onwards, bringing back concerns around price volatility and security of supply that could lead to higher prices, said Sadamori.

Expect to hear more on this at the inaugural Singapore-IEA Forum at SIEW 2017, which will address how the investments needed to meet Asia’s growing energy demand.

5. Stronger policy needed, but policy alone does not make the case for decarbonisation

Policy for decarbonisation needs to foster a predictable and stable environment that will encourage investment, said Sadamori. It also needs to be coordinated across multiple approaches to decarbonisation.

He added that strong policy is crucial for renewables to be more efficient and more widely deployed, for energy efficiency standards to be more stringent and uniformly applied, and for more investment in low carbon technologies like carbon capture and storage (CCS).

That said, policy alone is not enough. The theme for SIEW 2017 states that geopolitical developments and a possible shift towards more inward-looking policies could dampen trade, hinder longer term growth, and – if international decarbonisation commitments are diluted – set back efforts to build a sustainable energy future.

This is where businesses can make a significant contribution, said Hutchins. He added that there is a strong business case for decarbonisation, especially as low carbon technologies continue to come online, bringing down the costs and improving the productivity of renewables.

More insights will be shared throughout the year at the SIEW Energy Insights forums in Beijing and Tokyo. Stay tuned for additional local and regional perspectives on the theme and global energy issues in the lead up to SIEW 2017 in Singapore in October.